The unfolding mortgage crisis could get a lot worse, for the taxpayer at least. I'm looking back through my history of sites visited under the term "FDIC" and I see numerous articles alarmed by the FDIC's dire fiscal condition.

A few weeks ago, I stumbled across a great video blog entry on how the FDIC was compensating OneWest--a bank owned by major Goldman Sachs players--for every house it sold at less than initial loan value. OneWest acquired the loans from failed lender IndyMac in 2009 based on FDIC assurances that their losses on IndyMac loans would be subsidized.

The revised video entry dated Feb 8th, by thinkbigworksmall.com, contains a thorough accounting of how the OneWest/FDIC deal works. The two fellas at thinkbig provide a real world example of how OneWest profits from their "loss share agreement."

The FDIC responded directly and hotly to the charges, in a press release dated February 12th. It offer a list of Supplemental Facts that explain how much risk and debt OneWest absorbed, as well as restrictions and procedures on receiving FDIC funds.

The FDIC response churned up some mainstream interest. WallStreet Journal's marketwatch brings up a you-tube response to another purchase of a failed lender by OneWest:

"Earlier in February, the FDIC responded to a YouTube video that criticized its transactions with OneWest. The video has been removed [not sure if this is that of thinkbig, which remains posted], but FDIC spokesman Andrew Gray said in a Feb. 12 statement that it made 'blatantly false claims' about the loss-sharing agreement.

"The FDIC may be particularly sensitive about OneWest because it was formed in early 2009 when the regulator sold IndyMac to a group of private-equity and hedge fund investors, including former Goldman Sachs Group Inc. executive vice president Steven Mnuchin, as well as George Soros and J. Christopher Flowers.

"John Paulson, who made billions of dollars betting against mortgage securities during the housing crisis, is also an investor."

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The MarketWatch article, written by Alistair Barr, goes on to quote one analyst who said it "...was unusual for the FDIC to respond to criticism from outside the mainstream media." In other words, the FDIC tends to ignore criticism, because I doubt the mainstream media dares to criticize it much (accounting for the atypical nature of its response to the blogosphere.)

The thinkbig guys actually use the FDIC response to bring up what they deem a "huge" point: that the OneWest people only get their subsidy if the bank's losses exceed $2.5 billion or so. In other words, OneWest makes money if the homes they got from IndyMac collapse in value; no reward should they be able to sell them at a profit. According to the video, until OneWest "hit(s) that magical $2.5 billion loss mark," they have no incentive to offer loan modifications.

So in a broader sense, the FDIC deal with One West, and others like it, insure that the real estate market won't recover because the banks who take over loans from failed banks only get compensated for losses. OneWest has no reason to try and salvage what it can from IndyMac's mortgage portfolio--instead it can capitalize on the terms of the deal which more fully compensate OneWest if it can't sell the homes at full value, a prospect made infinitely more likely by the FDIC's reward-for-failure guidelines.

Goldman Sachs has been riding the taxpayers' money train for quite some time. They've been able to exchange their political influence at the highest levels of government for favored status as a bank holding company. They experienced record profits and bonus in 2009, in a year which saw their competitors struggle. The Goldman edge: cronyism. Bush Treasury Secretary Paulson was a former Goldman CEO reputed to have made $400 million while there. Former Goldman executives have served as economic advisers for the White House at the top or second highest positions.

Big media has always undersold the nexus between government and private sector, I suppose to further the myth that those who get ahead in our society do so by hard work and a level playing field--a notion the recent crisis (and those who've profited from the response) makes patently absurd. I'm indebted to the excellent work--real journalism--offered by the thinkbig guys and Tyler Durden at ZeroHedge who've exposed the techniques through which Goldman profits by cronyism. These methods are not only insidious but complicated. Easy it is to look at the methods by which financial companies make their money and assume they're simply to hard to understand. As a matter of fact, regulators complicit in the regulatory failures, and the entities that exploit them count on the lack of transparency and complexities of their dealings to keep them secret, a fact we see play out whenever the Federal reserve is called on to explain where the money went.

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Now OneWest could argue--or the FDIC, since quasi-government agencies (read implicit guarantee) and Goldman Sachs are so often united in their purpose--that their purchase of IndyMac saved the government millions. Then again, the FDIC letter states that the entity isn't supported by federal taxes, a point which only emphasizes the FDIC's negative $20 billion balance and the impending necessity for a bailout. Daryl Montgomery at seekingalpha.com explains:

"Its deposit insurance fund is now at a negative $20.9 billion. Despite statements that it has enough cash to keep operating (Bear Stearns and Lehman Brothers made similar claims), it is only a matter of time before the FDIC is bailed out. This will take place before the end of the year and will be done by tapping a line of credit from the Treasury department. Expect this event to be downplayed by mainstream media reports with claims that it is not really a bailout."

Contributions made by banks which supposedly cover the FDIC's costs are wholly inadequate. The consequence will be a massive bailout probably to exceed that of the S&L crisis during the Eighties, which came as the result of risky commercial real estate deals by the S&L's, coupled with inadequate regulations, associated with a group of Senators called the Keating Five.